Update: Johannesburg Attorneys Association has provided clarity on the case mentioned in the article below – specifically that the court made no ruling on the legality forward projection fees themselves, but rather the extent to which municipalities can ask for an advance.
The Supreme Court of Appeal has ruled that municipalities cannot demand that property sellers pay months advance for rates, fees and charges before issuing a rates clearance certificate, according to a report by The Star.
To transfer a property in South Africa, the deeds office must be provided with a rates clearance certificate confirming that the charges due to the municipality have been paid to enable the registrar to effect transfer of the property.
According to The Star, the case dealt with Nelson Mandela municipality and a private investment company, Amber Mountain Investments. Based on the facts, the municipality demanded at least R1 million in advanced rates for one year – an amount Amber Mountain Investments was forced to pay under duress if it wanted the sale to go through.
The seller believed it was liable only for rates and taxes up to the date of transfer, but not thereafter.
“This is good news for the property market when you consider municipalities are often demanding sellers pay up to a year’s rates, fees and charges in advance prior to issuing a rates clearance certificate,” said Aidan Kenny, director and property specialist at Werksmans Attorneys.
He said that sellers could now refuse to pay rates and charges in advance beyond the date of the certificate when applying for a rates clearance certificate.
Other new rules to know
In February of 2017, the High Court handed down an important judgment detailing new changes for all South African property owners and their utility bills.
This case dealt with a dispute between industrial group, Argent, and the Ekurhuleni Municipality. For five and a half years, Argent was charged for its estimated water consumption. Argent duly paid these charges, and during this period, the Ekurhuleni Municipality failed to take actual readings of the water meter.
In its judgement the High Court introduced the following new rules which would need to be followed by all utility bill payers and municipalities:
- If a consumer receives a utility bill citing, for the first time, charges older than three years, they cannot be held liable for such amounts, as the charges have prescribed.
- It is not the duty of the consumer to read meters and determine their actual consumption. As a result a consumer will not be considered to have acknowledged a debt when the municipality has failed to provide details.
- The prescription period (3 years)commences when the municipality should have taken actual readings and invoiced the consumer.
- The municipality has a duty to carry out such readings and invoice consumers at its convenience but at reasonable intervals.
- Where no records of regular actual readings are available to ascertain how much of a bill for several years has prescribed, the industry standard should be applied: average the consumption out over the months between the two readings and then use that average to calculate the consumer’s liability for the remaining period.
Forward projections are still lawful – just not for a year in advance
The Johannesburg Attorneys Association has provided some clarity on the case around the utilities bills and clearance certificates, saying that consumers should not think that they should not pay amounts charged by municipalities for the forward payment period.
“The case in question did not deal with forward projections,” the group said.
“Municipalities issue rates clearance certificates in a special prescribed form, that must remain valid for a minimum number of days.”
This is so that they remain valid when transferred over to a new owner (which takes an average of 3 months).
The municipality calls for payment of all amounts owing on the account, plus forward projections. These are estimate of future rates and taxes charged for 90-120 days.
“The idea is that you pay these in advance into your account, which puts your account into credit for 90-120 days. This is the best that the municipality can do to ensure that, when transfer passes, the account will be in credit,” JAA said.
The case in question did not deal with this forward projection – it is still lawful for a municipality to include these figures and require that they be paid before issuing a clearance certificate.
“The case said that a municipality may not charge a whole year’s rates to a consumer on the first day of the financial year, and then require payment of the balance of the year’s rates before issuing a clearance certificate,” JAA noted.
“The court said that most consumers elect to be billed rates on a monthly basis, and that a municipality can only require a consumer to pay rates up until the date of transfer.
“This does not mean that the municipality cannot call for forward projections for rates charges. A municipality must simply, after transfer, refund any amounts already paid by the consumer for rates that were paid but the consumer is not liable for,” the JAA said.
The Johannesburg Attorneys Association is a non-profit organisation serving practising professionals in the greater Johannesburg region.